Economic Research Forum (ERF)

The India-Middle East-Europe economic corridor: an early assessment

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The India-Middle East-Europe economic corridor represents an important shift in US and EU efforts to promote trade in the Middle East. Unlike past trade initiatives, the IMEC encompasses a broader coalition of regional and non-regional participants. It also makes a priority of infrastructure over trade policy as a means to expand inter- and intra-regional trade. While the IMEC has the potential to transform commerce on the Arabian Peninsula, international and domestic politics risk derailing its success. Western policy-makers have a strong incentive to invest their economic, political and diplomatic capital in helping to build an enduring and transformative IMEC.

In a nutshell

The European Union, France, Germany, India, Italy, Saudi Arabia, the United Arab Emirates and the United States have pledged to work together to upgrade and harmonise trade infrastructure between India, the Arabian Peninsula and Europe.

The IMEC departs from previous Western trade initiatives in the region in two ways: one is the actors involved, with India a key proponent and a focus on both North-South and South-South trade, the second is a focus on infrastructure, akin to China’s Belt and Road Initiative.

Following the announcement, the participating countries now face the hard task of turning ambition into reality: a successful IMEC will help to advance decades of US and EU efforts to deepen trade in the MENA region.

The G20 summit in New Delhi in September 2023 kicked off with the announcement of the India-Middle East-Europe Economic Corridor (IMEC). The European Union (EU), France, Germany, India, Italy, Saudi Arabia, the United Arab Emirates (UAE) and the United States pledged to work together to upgrade and harmonise trade infrastructure between India, the Arabian Peninsula and Europe.

Two ship-to-rail transit corridors linking India to Europe through the Arabian Gulf sit at the heart of the initiative. These corridors, spanning 4,800km, will cross the UAE, Saudi Arabia, Jordan and Israel – giving these states’ consumers and producers easier access to European and Indian markets. Electrical cables and pipes for clean hydrogen exports will shoulder the IMEC’s rail routes as well.

The White House hopes that the IMEC will ‘usher in a new era of connectivity from Europe to Asia.’ Proponents of the initiative estimate that the IMEC could cut the time to send goods from India to Europe by 40% and slash transit costs by 30%. The IMEC will also expand digital connectivity on the Arabian Peninsula, and give Europe and India new sources for clean gas. IMEC participants are planning to meet within the next 60 days to deliberate, coordinate and specify the details and costs underpinning this bold initiative.

The IMEC heralds important continuities and differences in long-standing US and EU efforts to promote trade in the Middle East. Those efforts began in the late 1980s and accelerated after the Oslo Accords. US and European policy-makers believed that greater trade would foster peace between Israel and its neighbours (al Khouri, 2007).

After 9/11, officials in the Bush administration viewed trade as a remedy for extremism. The Europeans saw trade as a lever for prosperity that would slow migration to their shores (al Khouri, 2008). Civil conflict in Syria and Libya a decade later hardened this perception. Meanwhile, at least before recent events in Israel and Gaza, US policy-makers were once again hopeful that greater trade between Israel, Palestine and other Arab states – especially the Gulf – will bring peace to the region.

The US and EU motivations behind the IMEC remain the same. US and EU policy-makers, and some of their regional counterparts like Jordan’s King Abdullah II, still view trade as an engine for regional growth and peace. That the IMEC might allow goods to transit between Saudi Arabia and Israel has some hoping that the initiative is a first step to normalisation between the two countries.

But the IMEC departs from previous US and EU regional trade initiatives in two fundamental ways. The first difference is the actors involved. India is a key proponent and beneficiary of the IMEC. Unlike previous initiatives, the IMEC promotes North-South and South-South trade. The economic success of the IMEC hinges on India becoming a major trading partner with Europe and the Middle East.

Saudi Arabia and the UAE are also major proponents of the IMEC. This is partly geographical. Saudi Arabia and the UAE form a natural territorial bridge between India and Europe. It is also financial. The Saudi Crown Prince Muhammad Bin Salman pledged to invest $20 billion in the initiative. Saudi Arabia and the UAE have the territory and capital to make the IMEC work.

What are some of the implications of Indian, Saudi Arabian and UAE participation in the IMEC? The first is that the IMEC has local stakeholders with direct incentives for the agreement’s success. Second, these countries’ participation dilutes US and EU influence on the agreement. States governing current or aspiring transit points on the IMEC will need to accommodate Gulf and Indian interests and conditions as well.

This points to a second implication of the IMEC’s broader partnership. Unlike past EU and US trade initiatives, the IMEC is unlikely to steer far beyond matters of trade and infrastructure. Gone are the days where trade agreements carried clauses about democracy and human rights.

This bundling of economic and political reform was a hallmark of the EU’s Euro-Mediterranean Partnership (al Khouri, 2007). The US tied human rights to its trade initiatives as well. The Bush administration reportedly ended its free trade agreement (FTA) negotiations with Egypt’s Mubarak regime after the latter’s refusal to release the defeated opposition candidate Ayman Nour from prison (Zimmermann, 2017).

Rulers of the UAE and Saudi Arabia, in addition to the Biden, Modi, Netanyahu and Meloni administrations, are unlikely to countenance much discussion of democracy, labour or human rights in the IMEC framework – to the detriment to the mostly foreign labour that will build the agreement’s rail corridors.

Nevertheless, the architects of the IMEC would be remiss if they ignored questions of clean governance completely. Infrastructure and public-private partnerships can be magnets of cronyism.

Meanwhile, half of the IMEC’s participating countries have not signed the World Trade Organization (WTO) Agreement on Government Procurement, an accord intended to promote the more transparent allocation of government contracts. Incorporating clauses within the IMEC that safeguard transparent procurement practices is not simply a matter of ethics. It is also a matter of effectiveness. Transparency and accountability in the disbursement of contracts to build and run the IMEC will lower construction and maintenance costs on the ship-to-rail transit corridors.

The IMEC’s focus on infrastructure is the second major difference with past EU and US trade initiatives in the region. Analysts view the IMEC as a Western response to China’s Belt and Road Initiatives (BRI) in the region (Inamdar, 2023; Saaman, 2023). In emulating the BRI’s emphasis on infrastructure, the IMEC moves the United States and the EU away from pushing for greater economic integration through more liberal trade policies like FTAs, special economic zones and regional trade agreements (Moore and Schrank, 2003).

Instead, the United States and the EU are betting that better and more integrated infrastructure will expand inter- and intra-regional trade. Both higher quality infrastructure and more liberal trade policies lower the costs of international trade. They are means to greater trade.

Infrastructure might be an easier fix than trade policy. Despite decades of European and US pressure to liberalise MENA states’ trade policies, the region retains some of the highest levels of protectionism in the world (Hertog, 2022, 2023).

Perhaps infrastructure could help EU and US policy-makers avoid the obstacles that have stymied trade policy reform in the region. Infrastructure is a mostly domestic affair. Infrastructure projects need engineers, not diplomats. Better infrastructure in the Middle East will not agitate protectionist special interest groups in Europe or India. Furthermore, two of the Middle Eastern states participating in the IMEC – the UAE and Saudi Arabia – already have some of the region’s and the world’s best trade infrastructure (World Bank, 2023).

Nevertheless, the IMEC will still face political obstacles. The corridor’s success requires the harmonisation of international regulations and trade policies. This means standardising policies on paper and in practice – neither of which is assured. There may also be domestic opposition from industries (trucking) and cities (ports not on the corridors) threatened by the corridors.

Local producers and consumers who are opposed to Israel and its policies in Palestine could be unwilling to use the IMEC – especially if Israeli ports become hubs on the ship-to-rail transit corridors. The recent eruption of violence between Hamas and Israel is sombre reminder of the lingering political challenges of including Israel in trade initiatives.

The IMEC is an ambitious proposal. Now the IMEC’s participating countries face the hard task of turning ambition into reality. They must determine who governs the trans-regional corridors and how. There will be many devils in those details. Regulatory and trade policy compromises will have to be made. But the benefits of a successful IMEC will offset the short-term costs of these accommodations.

A successful IMEC will also help to advance decades of US and EU efforts to deepen trade in the MENA region. At this critical moment where the foundations of this initiative are still being laid, US and EU policy-makers should invest the economic, political and diplomatic capital to help build an enduring and transformative IMEC.

Further reading

al Khouri, Riad (2007) ‘National Security Aspects of Western-Middle East Free Trade Agreement’, Aussenwirtschaft 62(2): 175-92.

al Khouri, Riad (2008) ‘EU and U.S Free Trade Agreements in the Middle East,’ Carnegie Middle East Center 8: 1-24.

Hertog, Steffen (2022) ‘Segmented market economic in the Arab World: The Political Economy of Insider-Outsider Divisions’, Socio-Economic Review 20(3): 1211-47.

Hertog, Steffen (2023) Locked Out of Development: Insiders and Outsiders in Arab Capitalism, Cambridge University Press.

Inamdar, Nikhil (2023) ‘Can India-Europe corridor rival China’s Belt and Road?’, BBC News.

Moore, Pete, and Andrew Schrank (2003) ‘Commerce and Conflict: US effort to counter terrorism with trade may backfire’, Middle East Policy 10(3): 112-20.

Samaan, Jean-Loup (2023) ‘The India-Middle East Corridor: a Biden Road Initiative?’ Atlantic Council.

World Bank (2023) Logistics Performance Index (LPI).

Zimmermann, Anne Mariel (2017) US Assistance, Development, and Hierarchy in the Middle East, Palgrave Macmillan.

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